July 06, 2017

IOSCO published two consultation papers setting out recommendations and good practices for liquidity risk management for funds. Comments on these two consultation reports should be submitted on or before September 18, 2017.

The first consultation, which is about recommendations on liquidity risk management for collective investment schemes, seeks to address structural vulnerabilities arising from asset management activities. It also addresses the structural vulnerabilities identified by FSB regarding liquidity risk management in the asset management industry in its final recommendations published in January 2017. The paper requests specific public comments on issues affecting exchange traded funds. This paper builds on the guidance set out in IOSCO´s 2013 report titled “Principles of Liquidity Risk Management for Collective Investment Schemes.” IOSCO´s consultation paper on the recommendations proposes revisions that supplement the 2013 liquidity report with additional recommendations and detailed guidance on several issues, including those highlighted in the FSB report. Topics covered in the consultation paper include:

Disclosure to investors

Alignment between asset portfolio and redemption terms

Availability and effectiveness of liquidity risk management tools and fund level stress testing

Additional recommendations on contingency

 

The second consultation paper provides practical information, examples, and good practices regarding open-ended fund liquidity risk management, to supplement its recommendations and is titled, “Open-ended Fund Liquidity and Risk Management – Good Practices and Issues for Consideration.” This paper is intended to assist regulators, industry, and investors. For regulators, the paper can act as a reference guide that illustrates how various jurisdictions regulate liquidity risk practices within their remit. For the industry, the examples describe where, when, and how certain tools have been used in the past and how they can be used in the future. Additionally, the report describes good practice for liquidity risk management throughout the entire life cycle of a fund. For investors, this document outlines scenarios in which the investor could expect an asset manager to use liquidity management tools to manage liquidity issues in certain funds.

 

Related Links

Consultation on Recommendations (PDF)

Consultation on Good Practices (PDF)

Final Report on the IOSCO Principles (PDF)

Comment Due Date: September 18, 2017

Keywords: International, IOSCO, Securities, Liquidity Risk, Collective Investment Schemes, IOSCO Principles

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